beyondbrics

What’s in a word? Quite a lot if it comes from the People’s Bank of China. Shares in Shanghai are up over 2 per cent today after the central bank said the state of the Chinese economy was “good”.

On its own, it might not have appealed so much to investors. But it has come amid growing signs that Chinese officials think they can manage to gently slow the country’s high-speed economy without crashing into financial trouble.

With a 2.3 per cent gain at 0820 BST, the Shanghai composite index is now 10 per cent above the 2010 lows it touched in early July. The Hang Seng, bouyed by hopes of a successful government land auction later on Wednesday, was 0.75 per cent higher – also 10 per cent above its low-point for 2010 (hit in May).

However, with Shanghai shares still 21 per cent down on the year, and the Hang Seng 9 per cent lower, there is still plenty of caution among investors, who worry about potential bad debt problems at banks, unstable property prices and possible property taxes.

The People’s Bank of China said on its website yesterday that the nation’s economic fundamentals remained “good”. China’s decreasing dependence on exports meant the European debt crisis was unlikely to have a large impact, the central bank said in its report for the second quarter. It said it was cautiously optimistic about the Chinese economy.

Bloomberg reports Zhang Tao, head of the central bank’s survey and statistics department, wrote in the Economic Daily newspaper that China would maintain a moderately loose monetary policy to year-end.

In other words, the official view is that if shocks are going to come to the Chinese economy, they will come from the outside.